Welfare capitalism
Encyclopedia
Welfare capitalism refers either to the combination of a capitalist economic system with a welfare state
or, in the American context, to the practice of businesses providing welfare-like services to employees. Welfare capitalism in this second sense, or industrial paternalism, was centered in industries that employed skilled labor and peaked in the mid-20th century.
In the early years of the 20th century, however, business leaders began embracing a different approach. Pioneered by George F. Johnson
and Henry B. Endicott
, these leaders sought new relations with labor. Their "enlightened selfishness" prompted them to offer wage incentives and other benefits. The point was to increase productivity by creating good will with employees. When Henry Ford
introduced his $5 a day pay rate in 1914 (when most workers made $11 a week), his goal was to reduce turnover and build a long-term loyal labor force that would have higher productivity. Turnover in manufacturing plants in the U.S. from 1910-1919 averaged 100%. Wage incentives and internal promotion opportunities were intended to encourage good attendance and loyalty. This would reduce turnover and improve productivity. The combination of high pay, high efficiency and cheap consumer goods was known as Fordism
, and was widely discussed throughout the world.
Led by the railroads and the largest industrial corporations such as the Pullman Car Company, Standard Oil
, International Harvester
, Ford Motor Company
and United States Steel, businesses provided numerous services to its employees, including paid vacations, medical benefits, pensions, recreational facilities, sex education and the like. (Brandes 1976) The Seaside Institute
is an example of a social club built for the particular benefit of women workers. Most of these programs proliferated after World War I -- in the 1920s.
The economic upheaval of the Great Depression in the 1930s brought many of these programs to a halt. Employers cut cultural activities and stopped building recreational facilities as they struggled to stay solvent. It wasn't until after World War II that many of these programs reappeared -- and expanded to include more blue-collar workers. Since this time, programs like on-site child care and substance abuse treatment have waxed and waned in use/popularity, but other welfare capitalism components remain. Indeed, in the U.S., the health care system is largely built around employer-sponsored plans.
By contrast to the experience in the United States, Europe built government operated welfare systems i.e. welfare capitalism in the sense the term is generally understood today. In the late 19th and early 20th centuries, Germany and Britain created "safety nets" for the citizens, including public welfare and unemployment insurance. It is true, however, that prior to providing government safety nets, many nineteenth century employers in Britain and on the continent provided welfare institutions much like those in the United States. Examples include worker housing assistance provided by the Fried Krupp firm in Germany, including a loan fund established in 1889 and free architect service; free housing provided to coal miners in France by Jules Chagot et Cie; and subsidized worker housing provided by Lever Brothers
in Britain.
Western Europe
, Scandinavia
, Canada
and Australasia
are regions noted for their welfare state
provisions, though other countries have socialized medicine
and other elements of the welfare state as well. The United States
, despite its Medicare
, Medicaid
and Social Security
provisions, is not generally considered to have enough of a social safety net to properly be called a welfare-state; businesses provide more of these services.
Esping-Andersen categorised three different types of welfare state
s in the 1990 book 'The Three Worlds of Welfare Capitalism'. Though increasingly criticised (for a review of the debate on the Three worlds of Welfare Capitalism see Art and Gelissen [2002] and Ferragina and Seeleib-Kaiser[2011]), these classifications remain the most commonly used in distinguishing types of modern welfare states, and offer a solid starting point in such analysis. It has been argued that these typologies remain a fundamental heuristic tool for welfare state scholars, even for those who claim that in-depth analysis of a single case is more suited to capture the complexity of different social policy arrangments. Welfare typologies have the function to provide a comparative lens and place even the single case into a a comparative perspective (Ferragina and Seeleib-Kaiser 2011) .
Esping-Andersen (1990) constructed the welfare regime typology acknowledging the ideational importance and power of the three dominant political movements of the long 20th century in Western Europe and North America, that is Social Demcoracy, Christian Democracy(conservatism) and Liberalism (Stephens 1979; Korpi 1983; Van Kersbergen 1995; Ferragina and Seeleib-Kaiser 2011).
The ideal Social-Democratic welfare state is based on the principle of universalism granting access to benefits and services based on citizenship. Such a welfare state is said to provide a relatively high degree of autonomy, limiting the reliance of family and market (Ferragina and Seeleib-Kaiser 2011) . In this context, social policies are perceived as 'politics against the market' (Esping-Andersen 1985). Christian-democratic welfare states are based on the principle of subsidiarity and the dominance of social insurance schemes, offering a medium level of decommodification and a high degree of social stratification. The liberal regime is based on the notion of market dominance and private provision; ideally, the state only interferes to ameliorate poverty and provide for basic needs, largely on a means-tested basis. Hence, the decommodification potential of state benefits is assumed to be low and social stratification high (Ferragina and Seeleib-Kaiser 2011) .
Based on the decommodification index Esping-Andersen divided into the following regimes 18 OECD countries (Esping-Andersen 1990: 71):
1. Liberal: Australia, Canada, Japan, Switzerland and the US;
2. Conservative: Austria, Belgium, France, Germany and Italy;
3. Social Demcoratic: Denmark, Finland, the Netherlands, Norway and Sweden
4. Not clearly classified: Ireland, New Zealand and the United Kingdom.
These 18 countries can be placed on a continuum from the most purely social-democratic, Sweden, to the most liberal country, the United States (Ferragina and Seeleib-Kaiser 2011) .
Promoted by business leaders during a period marked by widespread economic insecurity, social reform activism, and labor unrest, it was based on the idea that Americans should look not to the government or to labor unions but to the workplace benefits provided by private-sector employers for protection against the fluctuations of the market economy. Companies employed these types of welfare policies to encourage worker loyalty, productivity and dedication. Owners feared government intrusion in the Progressive Era, and labor uprisings from 1917-1919 -- including strikes against "benevolent" employers -- showed the limits of paternalistic efforts. For owners, the corporation was the most responsible social institution and it was better suited, in their minds, to promoting the welfare of employees than government. Welfare capitalism was their way of heading off radicalism and regulation then.
The benefits offered by welfare capitalist employers were often inconsistent and varied widely from firm to firm. They included minimal benefits such as cafeteria plan
s, company-sponsored sports teams, lunchrooms and water fountains in plants, and company newsletters/magazines -- as well as more extensive plans providing retirement benefits, health care, and employee profit-sharing . Examples of companies that have practiced welfare capitalism include Kodak, Sears, and IBM, with the main elements of the employment system in these companies including permanent employment, internal labor markets, extensive security and fringe benefits, and sophisticated communications and employee involvement.
The least popular of the welfare capitalism programs were the company unions created to stave off labor activism. By offering employees a say in company policies and practices and a means for appealing disputes internally, employers hoped to reduce the lure of unions. They dubbed these employee representation plans "industrial democracy."
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
or, in the American context, to the practice of businesses providing welfare-like services to employees. Welfare capitalism in this second sense, or industrial paternalism, was centered in industries that employed skilled labor and peaked in the mid-20th century.
History
In the 19th century, some companies -- mostly manufacturers -- began offering new benefits for their employees. They sponsored sports teams, established social clubs, and provided educational and cultural activities for workers. Some offered housing as well. Prime examples of this were the boarding houses built by textile manufacturers in Lowell, Massachusetts for their single female employees in the 1820s. The motive behind these offerings was paternalistic -- owners were providing for workers in ways they felt was good for them. These programs did not address the problems of long work hours, unsafe conditions, and employment insecurity that plagued industrial workers during that period, however. Indeed, employers who provided housing in company towns (communities established by employers where stores and housing were run by companies) often faced resentment from workers who chafed at the control owners had over their housing and commercial opportunities. A noted example was Pullman, Illinois -- site of a strike that destroyed the town in 1894. During these years, disputes between employers and workers often turned violent and led to government intervention.In the early years of the 20th century, however, business leaders began embracing a different approach. Pioneered by George F. Johnson
George F. Johnson
George Francis Johnson was an American businessman.-Early life:George Francis Johnson was born in Milford, Massachusetts on October 14, 1857 to Francis A. Johnson and Sarah Jane Johnson. His siblings were Oscar, C. Fred Johnson, Harry L., and Charlotte...
and Henry B. Endicott
Endicott, New York
Endicott is a village in Broome County, New York, United States. The population was 13,038 at the 2000 census. It is part of the Binghamton Metropolitan Statistical Area. The village is named after Henry B...
, these leaders sought new relations with labor. Their "enlightened selfishness" prompted them to offer wage incentives and other benefits. The point was to increase productivity by creating good will with employees. When Henry Ford
Henry Ford
Henry Ford was an American industrialist, the founder of the Ford Motor Company, and sponsor of the development of the assembly line technique of mass production. His introduction of the Model T automobile revolutionized transportation and American industry...
introduced his $5 a day pay rate in 1914 (when most workers made $11 a week), his goal was to reduce turnover and build a long-term loyal labor force that would have higher productivity. Turnover in manufacturing plants in the U.S. from 1910-1919 averaged 100%. Wage incentives and internal promotion opportunities were intended to encourage good attendance and loyalty. This would reduce turnover and improve productivity. The combination of high pay, high efficiency and cheap consumer goods was known as Fordism
Fordism
Fordism, named after Henry Ford, is a modern economic and social system based on industrial mass production. The concept is used in various social theories about production and related socio-economic phenomena. It has varying but related meanings in different fields, as well as for Marxist and...
, and was widely discussed throughout the world.
Led by the railroads and the largest industrial corporations such as the Pullman Car Company, Standard Oil
Standard Oil
Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
, International Harvester
International Harvester
International Harvester Company was a United States agricultural machinery, construction equipment, vehicle, commercial truck, and household and commercial products manufacturer. In 1902, J.P...
, Ford Motor Company
Ford Motor Company
Ford Motor Company is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
and United States Steel, businesses provided numerous services to its employees, including paid vacations, medical benefits, pensions, recreational facilities, sex education and the like. (Brandes 1976) The Seaside Institute
Seaside Institute
The Seaside Institute in Bridgeport, Connecticut is a Richardsonian Romanesque rock-faced granite, brick, brownstone and terracotta building designed by Warren R. Briggs and completed in 1887 at the corner of Lafayette and Atlantic avenues, not far from Seaside Park...
is an example of a social club built for the particular benefit of women workers. Most of these programs proliferated after World War I -- in the 1920s.
The economic upheaval of the Great Depression in the 1930s brought many of these programs to a halt. Employers cut cultural activities and stopped building recreational facilities as they struggled to stay solvent. It wasn't until after World War II that many of these programs reappeared -- and expanded to include more blue-collar workers. Since this time, programs like on-site child care and substance abuse treatment have waxed and waned in use/popularity, but other welfare capitalism components remain. Indeed, in the U.S., the health care system is largely built around employer-sponsored plans.
By contrast to the experience in the United States, Europe built government operated welfare systems i.e. welfare capitalism in the sense the term is generally understood today. In the late 19th and early 20th centuries, Germany and Britain created "safety nets" for the citizens, including public welfare and unemployment insurance. It is true, however, that prior to providing government safety nets, many nineteenth century employers in Britain and on the continent provided welfare institutions much like those in the United States. Examples include worker housing assistance provided by the Fried Krupp firm in Germany, including a loan fund established in 1889 and free architect service; free housing provided to coal miners in France by Jules Chagot et Cie; and subsidized worker housing provided by Lever Brothers
Lever Brothers
Lever Brothers was a British manufacturer founded in 1885 by William Hesketh Lever and his brother, James Darcy Lever . The brothers had invested in and promoted a new soap making process invented by chemist William Hough Watson, it was a huge success...
in Britain.
Modern welfare capitalism
The original definition of welfare capitalism, as used by the 19th century German economist, Gustav Schmoller, called for government to provide for the welfare of workers and the public, via social legislation, among other means. (And not to rely on business to do this.) While Schmoller's work is little available in English, his influence can be seen in the modern European welfare states.Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...
, Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...
, Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and Australasia
Australasia
Australasia is a region of Oceania comprising Australia, New Zealand, the island of New Guinea, and neighbouring islands in the Pacific Ocean. The term was coined by Charles de Brosses in Histoire des navigations aux terres australes...
are regions noted for their welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
provisions, though other countries have socialized medicine
Socialized medicine
Socialized medicine is a term used to describe a system for providing medical and hospital care for all at a nominal cost by means of government regulation of health services and subsidies derived from taxation. It is used primarily and usually pejoratively in United States political debates...
and other elements of the welfare state as well. The United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, despite its Medicare
Medicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
, Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...
and Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
provisions, is not generally considered to have enough of a social safety net to properly be called a welfare-state; businesses provide more of these services.
Esping-Andersen categorised three different types of welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
s in the 1990 book 'The Three Worlds of Welfare Capitalism'. Though increasingly criticised (for a review of the debate on the Three worlds of Welfare Capitalism see Art and Gelissen [2002] and Ferragina and Seeleib-Kaiser[2011]), these classifications remain the most commonly used in distinguishing types of modern welfare states, and offer a solid starting point in such analysis. It has been argued that these typologies remain a fundamental heuristic tool for welfare state scholars, even for those who claim that in-depth analysis of a single case is more suited to capture the complexity of different social policy arrangments. Welfare typologies have the function to provide a comparative lens and place even the single case into a a comparative perspective (Ferragina and Seeleib-Kaiser 2011) .
Esping-Andersen (1990) constructed the welfare regime typology acknowledging the ideational importance and power of the three dominant political movements of the long 20th century in Western Europe and North America, that is Social Demcoracy, Christian Democracy(conservatism) and Liberalism (Stephens 1979; Korpi 1983; Van Kersbergen 1995; Ferragina and Seeleib-Kaiser 2011).
The ideal Social-Democratic welfare state is based on the principle of universalism granting access to benefits and services based on citizenship. Such a welfare state is said to provide a relatively high degree of autonomy, limiting the reliance of family and market (Ferragina and Seeleib-Kaiser 2011) . In this context, social policies are perceived as 'politics against the market' (Esping-Andersen 1985). Christian-democratic welfare states are based on the principle of subsidiarity and the dominance of social insurance schemes, offering a medium level of decommodification and a high degree of social stratification. The liberal regime is based on the notion of market dominance and private provision; ideally, the state only interferes to ameliorate poverty and provide for basic needs, largely on a means-tested basis. Hence, the decommodification potential of state benefits is assumed to be low and social stratification high (Ferragina and Seeleib-Kaiser 2011) .
Based on the decommodification index Esping-Andersen divided into the following regimes 18 OECD countries (Esping-Andersen 1990: 71):
1. Liberal: Australia, Canada, Japan, Switzerland and the US;
2. Conservative: Austria, Belgium, France, Germany and Italy;
3. Social Demcoratic: Denmark, Finland, the Netherlands, Norway and Sweden
4. Not clearly classified: Ireland, New Zealand and the United Kingdom.
These 18 countries can be placed on a continuum from the most purely social-democratic, Sweden, to the most liberal country, the United States (Ferragina and Seeleib-Kaiser 2011) .
Welfare capitalism in the United States
Welfare capitalism in the United States refers to the policies of large, usually non-unionised, companies that have developed internal welfare systems for their employees. Welfare capitalism first developed in the United States in the 1880s and gained prominence in the 1920s.Promoted by business leaders during a period marked by widespread economic insecurity, social reform activism, and labor unrest, it was based on the idea that Americans should look not to the government or to labor unions but to the workplace benefits provided by private-sector employers for protection against the fluctuations of the market economy. Companies employed these types of welfare policies to encourage worker loyalty, productivity and dedication. Owners feared government intrusion in the Progressive Era, and labor uprisings from 1917-1919 -- including strikes against "benevolent" employers -- showed the limits of paternalistic efforts. For owners, the corporation was the most responsible social institution and it was better suited, in their minds, to promoting the welfare of employees than government. Welfare capitalism was their way of heading off radicalism and regulation then.
The benefits offered by welfare capitalist employers were often inconsistent and varied widely from firm to firm. They included minimal benefits such as cafeteria plan
Cafeteria plan
A cafeteria plan is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose...
s, company-sponsored sports teams, lunchrooms and water fountains in plants, and company newsletters/magazines -- as well as more extensive plans providing retirement benefits, health care, and employee profit-sharing . Examples of companies that have practiced welfare capitalism include Kodak, Sears, and IBM, with the main elements of the employment system in these companies including permanent employment, internal labor markets, extensive security and fringe benefits, and sophisticated communications and employee involvement.
Anti-unionism
Welfare capitalism was also used as a way to resist government regulation of markets, independent labor union organizing, and the emergence of a welfare state. Welfare capitalists went to great lengths to quash independent union organizing, strikes, and other expressions of labor collectivism—through a combination of violent suppression, worker sanctions, and benefits in exchange for loyalty. Also, employee stock-ownership programs meant to tie workers to the success of companies (and accordingly to management). Workers would then be actual partners with owners -- and capitalists themselves. Owners intended these programs to ward off the threat of "Bolshevism" and undermine the appeal of unions.The least popular of the welfare capitalism programs were the company unions created to stave off labor activism. By offering employees a say in company policies and practices and a means for appealing disputes internally, employers hoped to reduce the lure of unions. They dubbed these employee representation plans "industrial democracy."